micro, small and medium enterprises (msmes) in … · micro, small and medium enterprises (msmes)...

International Journal of Research and Development - A Management Review (IJRDMR)

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ISSN (Print): 2319–5479, Volume-4, Issue–4, 2015

44

Micro, Small and Medium Enterprises (MSMEs) in Delhi: Problems

and Prospects

Saud Ilahi

Department of Business Administration, Jazan University, KSA

Abstract: Micro, Small and Medium Enterprises (MSMEs)

are key to accelerate the pace of economic and social

development. They play a significant role in the economic

growth of the country owing to their contribution to

production, employment and exports. In recent years the

MSME sector has consistently registered higher growth

rate compared to the overall industrial sector. Delhi has

emerged as one of the biggest centers of MSMEs in the

country .Over the years Delhi has evolved the role of a

facilitator in the development of the industries in the NCT.

This paper focuses on the problems and prospects of

MSMEs in Delhi. Though this sector has been struggling

with various problems in the field of finance, technology,

infrastructure, marketing, labor etc still it has the potential

to play a significant role in the emergence of the Indian

economy. A survey has been conducted to study the

problems of entrepreneurs of Delhi and consequently some

measures have been suggested for better and effective

environment for MSMEs.

Keywords: MSMEs, Problems, Prospects, Measures

INTRODUCTION:

In India, Micro, Small and Medium Enterprises

(MSMEs) are very large in numbers, diverse in type of

business and are spread all over the country. This sector

has come up as a dynamic and strong sector of the

Indian economy. The labor intensity of this sector is

much higher than that of the large enterprises. It plays

important role in providing employment opportunities at

comparatively lower capital cost than large industries

and helps in industrialization of rural & backward areas

as well, thereby, reducing regional imbalances, assuring

more equitable distribution of national income and

wealth. MSMEs are complementary to large industries

as ancillary units and this sector contributes enormously

to the socio-economic development of the country.

Overall, the MSME sector accounts for 45 percent of

Indian industrial output and 40 percent of exports [3].

While most of the sector is unorganized. There are

approximately 36 million Micro, Small and Medium

Enterprise sector enterprises across various industries,

employing 80.5 million people [1].

The National Capital Territory of Delhi has emerged as

one of the biggest centers of MSMEs in the country. It

has recorded a rapid growth in production, exports and

employment. This Sector has a proven vast potential to

play a leading role in the overall development of the

national economy. The government of Delhi has evolved

over the years the role of a facilitator in the development

of the industries in the NCT of Delhi [7]. The mission is

to promote, encourage and develop environment friendly

MSMEs in Delhi. In Delhi there are 0.55 million

MSMEs employing about 2 million people [1]. Today,

this sector produces a variety of products, from simple

consumer goods to high-precision, sophisticated finished

products. It has emerged as a major supplier of mass

consumption goods as well as a producer of electronic

and electrical equipment. An impetus to the sector is

likely to have a multiplier impact on economic growth.

PRESENT DEFINITION OF MSME: -

As per MSMED Act- 2006, Micro, small and medium

enterprises are defined based on their investment in

plant and machinery for manufacturing enterprises and

on equipment for enterprises providing or rendering

services [14]. The present ceilings on investment for

enterprises to be classified MSMEs are as follows:

(i) Manufacturing Enterprises- The enterprises

engaged in the manufacture or production of goods

pertaining to any industry specified in the first schedule

to the industries (Development and regulation) Act,

1951). The Manufacturing Enterprise are defined in

terms of investment in Plant & Machinery.

(ii) Service Enterprises: The enterprises engaged in

providing or rendering of services and are defined in

terms of investment in equipment [4].

Table-1- Investment Ceilings for Micro, Small and

Medium Enterprises

Classification Manufacturing

Enterprises*

Service

Enterprises**

Micro Rs. 2.5 million /

Rs. 25 lakh

Rs. 1 million /

Rs. 10 lakh

Small Rs.50 million /

Rs. 5 crore

Rs. 20 million

/ Rs 2 crore

Medium Rs 100 million /

Rs 10 crore

Rs. 50 million

/ Rs 5 crore

* Investment limit in Plant & Machinery ** Investment

limit in equipment


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Source: Annual Report, Govt. of India, Ministry of

Micro, Small and Medium Enterprises, 2014-15, p.298.

Objectives:

To analyze the problems of MSMEs in Delhi.

To examine the prospects of MSMEs in the

development.

To suggest the measures for better and conducive

environment for MSMEs.

Methodology: The technique used for data collection is

one on one interview of select owners of MSMEs in

Delhi. The data is collected through structured

questionnaire from 100 entrepreneurs. Individual

responses obtained are compiled, processed and

analyzed to arrive at the opinions on various issues. In

addition to primary data the secondary data has been

collected from industry reports, articles published in

journals and dailies, books and websites.

PROBLEMS OF MSMEs

Financing: -

Finance has been one of the major hurdles of the

entrepreneurs who are persons of small means and

require short term, medium term and long term finances

to meet their business obligations. Small units, as is well

known, are not exclusively and not even mainly

dependent on Government assistance. These small units

are not in a position to offer the guarantee required by

the banking sector. Even when small loans can be raised

from Government agencies, the procedure is so

cumbersome that most of the entrepreneurs, who are

either illiterate or semiliterate, hesitate to make use of

these facilities. This fact is supported by the Moga study

conducted under the supervision of Mr.V.S.Mahajan.

The finding of the study is that almost all the 300 and

odd small units engaged in the production of agricultural

implements were started with the entrepreneurs’ own

funds and with funds borrowed from relatives and

friends, and that the nationalized banking sector and

State Financial Corporations have contributed precious

little. If only the bureaucracy were helpful, a major

problem of the small industrialist would be solved.

Outdated Technology: -

The problem of technology is the case of all industries.

To affect economy and efficiency in production, the use

of latest techniques and improved tools is highly

essential. The growth of MSMEs in India has not been

very satisfactory despite the various provisions for its

promotion in the Industrial Policy of the country. In

general MSMEs lack in accessing technology due to

many reasons, it is one of the major handicaps of this

sector, which alone can ensure quality, and high rate of

productivity [13]. The small industrialist, therefore,

should keep himself abreast of developments in

technology, so as to survive in the market, improving the

quality of his products, lowering the cost of production.

Unless he updates the technology, he may soon find

himself squeezed out of business. It is even advisable for

the small entrepreneur to give a lead in research and

development, which may not always be very expensive

[2].

Marketing: -

Marketing is one of the important problems for small-

scale industries. The many problems which they face in

marketing their products are lack of standardization,

ignorance of manufacturers about the export market and

the method and procedure of export, poor designing,

poor quality, lack of advertising at national and

international level, poor bargaining power, absence of

marketing research, competition etc. Because of weak

financial base, a small industrialist cannot afford to

spend as heavily as a large unit does on marketing his

products

Quality of the Product: -

It is essential for the firms that quality products be

produced at reasonable prices. A reasonable price is one,

which is welcomed by general consuming community,

and the firm is able to sell out its products without much

difficulty. So concentration should be on the production

of high quality products rather than producing large

quantity of inferior products. The inferior quality of

goods produced in MSMEs is due to certain reasons like

non availability of good quality of raw materials at

reasonable rates, lesser capital outlay, easy selling of

goods in market, inappropriate use of modern

technology [9].

Tough Competition:-

In new era of production, MSMEs face tough

competition from the large domestic firms and

multinationals firms, who are equipped with financial

strength, managerial ability, skilled workers, improved

technology, marketing skills, better product quality and

wide range of products. Moreover frequent cases of

merger and acquisition have made it difficult for the

small firms to maintain their existence.

Delayed Payments: -

One of the most difficult problems of the small

industrialist today is recoveries from sales. They face

serious financial difficulty in as much as a large number

of the total MSMEs catering to large industries face the

problem of late payments of their bills by the latter. This

is as per the report by RBI committee [10]. The financial

assistance availed of by the small unit with great

difficulty from a bank is taken advantage of by its

customers, who do not pay their dues in time. The bank

may, if at all, extend further assistance; but this

assistance, after all, is not limitless.

Accommodation/Infrastructure: -

The provision of adequate factory accommodation had

been one of the most important problems limiting the


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development of modern MSMEs. In this connection the

problem of the entrepreneurs is twofold; firstly, they

hesitate to lock up a large proportion of their capital in

the construction of factory building and secondly, they

face difficulty in the acquisition of land at suitable place.

Banks and other financial institutions have not shed their

traditional attachment to liquidity and safety of

resources. The choice of location, and getting water and

power connections, also call for a great deal of effort on

his part. It is not easy to decide on location, for the

choice involves consideration of the availability of

labour and the proximity of markets. Once the location

chosen, one has to go ahead to select and purchase a plot

of land and construct a shed or to take it on rent or on

ownership basis. The MSMEs producing beverages,

tobacco products, medicines etc face the problem of

inadequate water supply. As per the study conducted by

Keshab Das and Sebastian Morris (2001), out of 1063

surveyed firms, 716 firms (more than sixty-seven

percent) confessed that they have serious infrastructural

problems [8].

Scarcity of Raw Materials: -

The non-availability of raw materials in sufficient

quantities has been one of the main problems of small-

scale industries. Because of their smallness and weak

financial position, MSMEs have to utilize the services of

middlemen to get raw material on credit. Such an

arrangement, however, results in higher costs and in

particularly disadvantageous when raw material are

imported, for the profit margins of middlemen are rather

high [6]. Their meager resources induce small

industrialists to use cheap and inferior materials, which

naturally affect the quality of their finished products.

Moreover, the irregular supply of certain raw materials

adversely affects their production programmes.

Inefficient Labour: -

Owing to the illiteracy, ignorance and the out of date

methods of the workers, there is inefficient human

factor. The entrepreneurial abilities of the promoters of

cottage and MSMEs are handicapped by the lack of

technical knowhow on the areas of production, finance,

accounting and marketing management. Handling

labour, which is a major contributor to industrial

production, is one of the most difficult tasks of the

industrialist because of the human element involved in

it. One has to keep abreast of the maze of labour laws,

keep changing from time to time. Labour today is fully

aware of its rights. It has, therefore, to be handled with

patience and understanding. It is very important,

therefore, to evolve a code of conduct for trade unionists

to protect the interests of labour as well as of employers;

this will add to the general prosperity and wellbeing of

both.

Faulty Planning: -

One of the major problems is faulty planning and

inadequate appraisal of projects. No proper viability

studies, technical or economic, are carried out before

units are sponsored. Even when detailed project reports

are prepared, inexperienced entrepreneurs may “build”

sickness into their units from the conception stage itself.

They may opt for an improper location, employ

inadequately experienced consultants, choose improper

technology, under-estimate the fixed and operational

costs involved in the manufacture of their products, and

embark on a project without a proper market survey.

Development of Designs: -

Design is of basic importance in any production. It is the

design, which gives identity to the object. The

consumers are always in search of new designs and

therefore, it becomes essential that development of

designs given due weight by the entrepreneurs in any

scheme for the development of small scale and cottage

industries. The government has set up schools of designs

to evolve new designs to cater the needs of small scale

producers for meeting the diverse and varied tastes of

the consumers. However, the school of designs needs to

have better liaison with the marketing organization.

POTENTIALS IN MSMES

Equality in Distribution of Income:

Large-scale industries give rise to the problem of

inequality of income as the income concentrates in the

hand of industrialists. In case of MSMEs there remains

lesser amount with the owner after paying wages to

workers, interest on capital and rent of land. So income

is more equitably distributed.

Mobilization of Savings:

These industries can be started with small capital even

on cooperative basis. It can be proprietorship or

partnership. Persons desirous of establishing these

industries save their income and also mobilize savings

from other members of the society [11]. These industries

provide an incentive to the weaker section of the society

to form these industries with their small savings.

Employment with lower degree of Skill:

MSMEs are labor intensive and have great employment

generation potential. They have simple technology and

do not require high degree of technical skill. These

industries can be operated even by persons of ordinary

skill, leading to significant contribution in employment

generation and expanding industrial network in rural

areas. The employment can increase to manifolds, if this

sector gets support in terms of infusion of technology,

capital and innovative marketing techniques etc.

Individual Tastes and Personalized Services:

Small firms are quick in studying changes in tastes and

fashions of consumers and in adjusting the production

process and production accordingly. By doing that they

satisfy the consumers on one side and on other side, it is

also necessary for their survival.

Flow of foreign investment and technology:


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Recently many foreign companies have tied up with

Indian MSMEs and helped them to use better

technology, product design, labor and managerial skill.

This collaboration between the Indian and foreign

companies can help small firms to develop technology

base through research & development activities and sort

out the problem of finance to the large extent [12].

Export contribution:

Some Indian products like gems and jewellery, carpets,

handicrafts, readymade garments, woolen garments and

knitwear, leather products have excellent demand

foreign market. These products can generate good

foreign currency useful for the development. As per the

results of fourth MSME census this sector has registered

an export earning of Rs 202017 crores [5].

Survey Analysis:

The survey includes 61% sole proprietorship firms,

27% partnership and 12% private company.

As per the investigation 82% of the firms have

been established after 1980.

In regard to monthly income most of the

entrepreneurs, i.e. 48% earn between Rs.50000 –

Rs.100000, followed by 34% entrepreneurs in the

group of 100000-200000, 12% in More than

200000. Only 6% entrepreneurs earn less than

50000.

The qualification of entrepreneurs reveals that

surprisingly most of the entrepreneurs (51%) have

less than matric education, almost 1/4th

(27%) are

graduates, ,7% have completed schooling and just

5% entrepreneurs have technical Qualification. It

shows that entrepreneurs are not highly educated.

Finance is one of the major problems faced by the

entrepreneurs as result shows 52% of entrepreneurs

admit to face the problems in getting finance.

The investigation finds out that 30% producers

have taken financial assistance from commercial

banks, 20% from financial institutions while

surprisingly half of them i.e. 50% have managed

the finance themselves.

The major problem of getting finance is a lengthy

procedure as experienced by the entrepreneurs i.e.

39%. The other problems faced by them are

providing guarantee i.e. 33.3% and indifferent

attitude of officers i.e. 22.2% respectively.

3/4th

of the firms (75%) sell their product

themselves while 1/4th

of them (25%) take help of

mediators.

Almost 1/4th

of the firms (24%) advertise their

products while majority of them (76%) refrain

themselves from that. they are not interested in

increasing their marketing.

The survey shows that the government does not

assist the entrepreneurs in selling the products as

97% of them reply of selling the products on their

own whereas meager 3% take marketing assistance

from the government.

On the question of export 70% of producers admit

to sell the products in local market as the products

are not generally standardized and suffer from

design and quality and 30% of them managed to

deliver their products in the foreign markets.

Most of the firms i.e. 81% get raw material easily

while 19% have to face the problems in acquiring

the raw material.

A large no. of firms sell their products to

wholesalers i.e. 48%, then to retailers i.e. 27% and

consumers share being 25%.

The nature of technology used is mostly

indigenous i.e. 87% whereas imported technology

utilization is 13%.

The technology is upgraded by 81% entrepreneurs

time to time and rest of them i.e. 19% rely on the

same technology.

Majority of the entrepreneurs i.e. 87% are satisfied

with the existing technology while 13% show their

displeasure in the utilization of the technology.

On the issue of installation of machinery 68%

firms do not face any problem whereas 33% have

to depend on others for this task.

They also do not take any help for appropriate

technology.

The survey also reveals that most of the

entrepreneurs i.e. 83% haven’t attended the

Entrepreneurship Development Programs (EDPs)

and only 17% of them have attended the EDPs.

Out of the entrepreneurs, who have attended the

Entrepreneurship Development Programs (EDPs),

64% admit to get the benefit whereas 36% don’t

find the EDPs of much use.

The investigation reveals that 61% firms recruit

only trained employees and 39% of them have no

problem in recruiting the crude employees.

In regard to providing training to the employees,

findings show that 70% firms provide training to

their employees as and when required while 30%

don’t concentrate in this area.

The entrepreneurs’ major problem regarding

employees is turnover i.e. 72% as the wages paid to

employees are not sufficient. 24% entrepreneurs

complain of absenteeism and only 4% of them face

other problems.


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CONCLUSION AND RECOMMENDATION:

Micro, small and Medium Enterprises (MSMEs) sector

is one of the most vibrant and sensitive sectors in Indian

economy. The significance of Micro, small and Medium

Enterprises (MSMEs) is attributable to its capacity of

employment generation, low capital and technology

requirement, use of traditional skill, use of local

resources, mobilization of resources and products.

Though this sector has been struggling with various

problems in the field of finance, technology,

infrastructure, marketing, labor etc. still it has the

potential to play a significant role in the emergence of

the Indian economy. At present, Indian economy is on

the fulcrum of an ever rising growth curve with positive

indicators such as a stable annual growth, rising foreign

exchange reserves and a booming capital market. The

role of this segment is very important to meet the

national imperatives of financial inclusion and

generation of employment across the country. The

following measures have been recommended for

improved and conducive environment for the MSMEs.

Entrepreneur should be encouraged to attend the

EDPs as survey reveals that most of the

entrepreneurs have got benefits from these.

The procedure of taking loan is lengthy and

cumbersome; it should be made simple,

transparent and less time consuming so that the

producers can take the proper advantage.

Government should come forward to assist the

entrepreneurs in selling product so that they may

fetch good price which is the encouragement for

them.

Entrepreneurs should be educated regarding the

existing facilities/support system available and

the procedure to avail those facilities to get the

maximum advantage.

Both the government and non-government

organizations should take initiative in the

upliftment of the technology so that the

entrepreneurs should compete the international

market.

Adequate incentives should be offered to labor to

control the problem of high turnover. Proper

system of employees’ maintenance should be

adopted to discourage the habit of absenteeism.

Government should take concrete steps to control

the prevailing corruption practices in the market

especially the prices and availability of raw

material.

REFERENCES:

[1] Annual Report, Govt. of India, Ministry of

Micro, Small and Medium Enterprises, 2014-15,

pp.3-5, 298.

[2] Desai Vasant, “Small Scale Industries &

Entrepreneurship”, Himalaya Publishing House,

Delhi, 2003, p. 15

[3] Development Commissioner, “SSI in India- An

Engine of Growth”, Development Commissioner,

New Delhi, 2002. p. 63.

[4] Development Commissioner, “ SIDO’s Half

Century”, Development Commissioner SSI,

Government of India, 2004, p. 43.

[5] Fourth All India Census of Micro, Small &

Medium Enterprises, 2006-07

[6] Jain Neelam, “Small Scale Industries in New

Millennium”, SEDME, Vol. 31, N I, March 2004,

pp. 11-13.

[7] Joint Director of Industries, “Industrial Profile

Delhi”, Govt. of India, New Delhi, 2011, p. 1.

[8] Lahiri Rajib , Financing Micro, Small And

Medium Enterprises (MSMES) In India During

Post Liberalization Period: A Study On

Traditional And Unconventional Approaches Of

Financing : Indian Streams Research Journal,

Vol.2, Issue 8, 2012, p.27

[9] McClelland, D.C. and Winter, D.C. “Motivating

Economic Achievement”, New York, The Free

Press, 1971. pp. 41-45.

[10] Murthy C.S.V., “ Small Scale Industries and

Entrepreneurial Development”, Himalaya

Publishing House, Delhi,2009, p.24.

[11] Schumpeter J.A., “The Theory of Economic

Development”, Oxford University Press,

NewYork, 1967, p. 621.

[12] Sonia and Kansai Rajeev (2009), “Globalisation

and its impact on Small Scale Industries India” ,

PCMA Journal of Business, Vol. 1, No. 2 (June,

2009) pp. 135-146, ISSN0974-9977, (Available

in http://www. Publishingindia.com/Upload/

Sample Article

[13] http://dcmsme.gov.in/Technology

UpGradation.htm

[14] http://msme.gov.in/msme_aboutus.htm.

http://msme.gov.in/msme_aboutus.htm

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